Business contract hire (BCH or business car leasing) is a useful way for your business to get access to a car without the hassle of having to legally own it.
To put it simply, this type of car finance lets you lease a car for a business for a number of months, eventually returning it to the finance company.
So, what is BCH and how does it work? Here’s our ultimate guide to business contract hire and everything you’ve ever wondered about it.
What is business car leasing?
Business contract hire (also known as BCH) is essentially the business-friendly version of personal contract hire (PCH). The key difference with a business lease is that you’re leasing it on the behalf of a business, rather than solely for your personal use.
With a business lease, the company becomes a registered keeper of the car, but they’ll never own it. They have sole use of it for the duration of their contract but they always need to keep in mind that it is the property of the leasing company.
BCH deals are useful because they reduce the financial risks that come with owning a car. They also give you access to the latest, high spec models at the start of their lifespan - no ropey hand-me-downs here.
Cars have an unfortunate habit of losing value - faster than England or Scotland losing in the World Cup. In its first year, a car can lose nearly half of its overall value. If you want to sell the car on in the future, this depreciation can spell disaster. A business lease takes this risk out of your hands.
There are obviously limits to who can take out a business contract hire agreement – it’s not like finance companies hand out cars like sweets, after all. You’ll need to be running a business of some kind and registered as either a limited or public limited company to benefit from this type of car finance. When you’re applying for BCH, you have to be able to provide proof of that too, so expect to be asked to dig out bank statements, proof of address, and ID for the main director.
As an industry, business car leasing is growing massively. The British Vehicle Renting & Leasing Association (BVRLA) for instance, recently reported that the leasing market in the UK has grown to a huge 1,350,000 customers – an average annual increase of 7.6%.
Financial expert Martin Lewis, who runs the ever-helpful Money Saving Expert website, has a good article exploring the nuts and bolts behind car leasing and business car leasing which is worth checking out if you want to learn more.
How does business car leasing work?
At LeaseFetcher, we’re big fans of showing not just telling. So, to break down how business car leasing works, we’re going to use a nice example for you:
Brian runs a football merchandise store and wants to get his hands on a state-of-the-art BMW to use as a company car for his visits to suppliers and stockists around the country. He checks out an online car leasing comparison tool, finds a beautiful, affordable (by the standards of the stingy accounts department) set of wheels, and then reaches out to the broker.
The broker asks Brian to go through some identity checks to prove he’s a genuine business owner and that he is actually Brian. He has to undergo a credit check too so the broker can be sure he’ll be able to keep up with the payments.
Once these checks are all out of the road and Brian is given the green light, he enters the payment plan negotiation stage. Brian decides he wants a three year contract. So, he’s asked to pay an initial rental (like a deposit) and set monthly payments for the next three years.
These payments go towards paying off the depreciation costs of the car. The initial rental is subtracted from the guaranteed minimum future value of the car, and the remainder is divided evenly amongst the number of months in the contract. Brian’s road tax, insurance, and maintenance package is included in the costs too.
For now, Brian and the company are the registered keeper of the car, but they won’t ever become the registered owner. If Brian’s company doesn’t keep up to date on monthly payments, he risks having the car repossessed and his credit rating tarnished. We've covered how car leasing payments are worked out in detail in other articles on our blog, if you're looking for more information.
Fast forward three years and Brian receives a reminder from the broker than his contract is drawing to a close. He arranges to return the car. He hasn’t exceeded his annual mileage limit or damaged the vehicle beyond the confines of the fair wear and tear guidelines, so he won’t fork out any extra cash. He’s free to look for a new car lease, and to keep his custom, the broker might throw in a cheeky discount for him.
Claiming back the cost of BCH with tax
One of the big allures of business car leasing is that you can claim back chunks of tax.
The cost of the monthly installments can be claimed back as a business expense, along with road tax and fuel, but the full amount you claim will depend on its CO2 emissions.
If your car has emissions higher than 130g/km, you’ll only be able to claim around 80% of the total back. If emissions are under this figure though, you’ll be able to claim back the full amount.
Similarly, if you use the car solely for business, you should be able to claim back 100% of VAT. If you use it in a personal capacity – even for just the odd trip or errand – expect to only be able to claim 50% of the VAT back though.
It’s also worth bearing in mind that you’ll also be able to claim 100% of VAT back for any maintenance package that you add to your lease too.
What are the benefits of business car leasing?
Why are so many people flocking to sign up for a business lease? The simple answer is that there are just so many benefits.
- Fixed monthly payments: Leasing offers fixed cost motoring, which improves cash flow and offers peace of mind for business users.
- Minimal capital expenditure: With low monthly rentals and low initial outlay, leasing offers minimal capital expenditure for businesses looking to drive new vehicles.
- No depreciation risk: Most cars lose between 50-60% of their value during the first three years, however, by leasing the risk is taken on by the vehicle funder.
- New cars: When you lease, you get a factory fresh model. As most leases only last a few years, you can drive a new car regularly, benefiting from an ever improving standard spec and safety.
- VAT recoverable: 100% of VAT is recoverable if the vehicle is solely for business use, or 50% if the car has some private usage.
- Full warranty: All vehicles come with a full manufacturers' warranty, and will normally cover the full period of your lease, for peace of mind.
What are the drawbacks of business car leasing?
Unfortunately, as much as we'd like to say otherwise, business car leasing isn't all rainbows and lollipops – there are a few sticking points that some people take issue with. They are:
- Modification: The vehicle can not be modified for any particular business purposes. No slapping your logo on the side of the car!
- You can't sell the car: Your business will never actually own the car, so you won’t be able to sell it on for profit.
- Cancelling fees: Cancelling your contract early can often result in a large fee.
- Mileage limits: You’ll have to pay mileage charges if you clock up excess mileage above what you agreed in your contract.
- Liability for any damage: You need to return the car in the condition that you agreed to at the start of the agreement or you’ll fork out compensation or for repairs.
Is business car leasing suitable for my business?
Deciding if a business car lease is right for your business will obviously depend on your unique circumstances and what you need in a car.
If your business needs a fleet of vehicles, business car leasing can be very useful. You can potentially get your mitts on £100,000s worth of cars in an instant for low monthly payments. If you only need one car and you really want to sell it on down the line, leasing probably isn’t for you. I'd recommend going through the list of benefits above and seeing if anything jumps out at you as being a 'must-have' feature.
If you find more than one, that's probably a good sign that leasing's right for you.
Where can I sign up?
Thanks to our handy pal, the Internet, signing up for a business car lease is now easier than ever before.
If you're insanely organised and know the exact car and exact lease options that you want, you can contact individual brokers and get quotes. Most other people will probably rely on the good, old-fashioned car leasing comparison website.
LeaseFetcher is the UK’s first dedicated car leasing comparison website, so we recommend you use us to look for your next set of wheels (we’re not biased, honest!). With millions of deals updated daily, LeaseFetcher is revolutionising the way that we access lease cars.